From an investment point of view, Moldova is worth taken into consideration as an attractive country with a huge business potential for international investors, due to its location on the map, tax and legal systems as well as highly qualified work force. Additionally, Moldova has signed a European Union Association Agreement treaty as well as an Agreement on Free Trade Zones within the CIS, which has increased its attractiveness for international investors, which have been investing more confidently since 2014, a proven fact given the rise of new foreign investments during the last 6 years. At the same time, for the year 2020, the World Bank through its Doing Business platform has ranked Moldova on the 48th place worldwide, with regards to the ease of doing business and its potential for foreign investors.
What are the key tax things that investors should take into consideration?
Corporate income tax
Legal entities can apply, based on the level of activity undertaken, one of the 2 tax regimes detailed below:
- A 4% tax from the income obtained (for legal entities which are not registered as VAT payers); or
- A 12% tax from the taxable income (for the rest of the legal entities).
Therefore, as long as the legal entity is not registered as a VAT payer, such can apply a tax of 4% from the income obtained during that year. Otherwise, the legal entity will calculate, owe and pay a corporate income tax of 12% from the taxable income, calculated at the end of the fiscal period. Of course, should the legal entity apply the latter tax regime, such will benefit from certain tax deductions provided by the local tax legislation. Additionally, please note that the fiscal losses can be reported and used for a period of up to 5 years.
Tax on dividends
Dividends are taxed based on a preferential tax regime in Moldova, with the purpose of attracting foreign investments in the local economy, at 6% rate. Additionally, Moldova has signed 50 international tax treaties for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and on capital, and the tax on dividends can be diminished, depending on the provisions of each treaty with the country of residence of the foreign investor.
As an additional note, dividends can be distributed both after the end of the financial year as well as in advance during the year, based on the decision of the shareholders.
Value added tax (VAT)
The local tax legislation of Moldova provides for several VAT rates, as following:
- 20% – standard rate, applicable to import of goods and services, as well as deliveries made on the territory of Moldova;
- 12% – diminished rate, applicable to the hospitality sector: (i) accommodation services and (ii) food or beverages consumed in specially designed places;
- 8% – diminished rate, applicable to products of social importance (bakery products, sugar, medicines, natural gas and other);
- 0% – diminished rate, applicable to export of goods and services, electricity, goods and services delivered to Free Economic Zones, etc.
At the same time, the registration for VAT purposes can be made voluntary at any time, but becomes mandatory when a legal entity has made taxable supplies of goods or services during a period of 12 consecutive months, exceeding MDL 1,2 million (~EUR 57k).
Moldova has introduced a 12% tax applicable to capital gains obtained by both residents and non-residents individuals. However, the amount of the capital gain considered for tax purposes is equal to 50% of the amount in excess of the capital increase, determined according to the provisions of the local tax legislation. In other words, only 50% of the profit obtained from a sale will be taxed at 12%.
In Moldova, the salary income and salary assimilated income is taxes as following:
- Income tax in amount of 12% (borne by the employee); and
- Compulsory health insurance premiums of 9% (borne by the employee); and
- Social security contributions of 24% (borne by the employer).
Additionally, employees can benefit from daily meal vouchers with between MDL 35 and MDL 45, which are not taxes, as well as from transportation services to and from the workplace.
The most common taxes applicable to the activity of entrepreneurs in Moldova are:
- The tax on real estate, which is due by taxpayers depending on the value of the goods, being established by the local authorities within the limits of:
- For apartments and houses – from 0.05% to 0.4%;
- For agricultural land – from 0.1% to 0.3%;
- For commercial buildings – 0.3%.
- Territory improvement tax, which is capped to a maximum of MDL 200 (~EUR 10) per employee/ year;
- Tax for commercial and/ or services units (set by each local territorial administration individually, in Chisinau, for example, such is capped to MDL 100.000 – approx.. EUR 4.700 per year).
Goods crossing the borders of Moldova are subject to customs control and regulations. Generally, custom duties are set ad valorem, ranging from 0% to 10%, or expressed in absolute units for quantities. Additional duties for customs procedures are also applied for:
- Customs processing of goods;
- Processing of customs declaration or forms;
- Issuing the certificate of origin of the goods or for the application of stamps.
Currently, taxpayers are provided with several customs regimes applicable to goods, such as:
- Permanent (import or export);
- Temporary (transit, warehousing, inward/outward processing, temporary admission).
Please note that Moldova applied preferential provisions based on the European Union Association Agreement treaty as well as the Agreement on Free Trade Zones within the CIS.
Free Economic Zones (FEZ)
Free Economic Zone are specially designed areas for local and international investors, which offer preferential tax regimes in order to stimulate foreign investments and the local economy. For example, in 2020, there were 7 free economic zones in Moldova, with 34 subzones, which had 213 companies employing over 16.500 employees.
Among the biggest benefits offered to companies that are residents of these Free Economic Zones are:
- A 50% exemption from the tax rate of 12% for the income obtained from the export of goods or services originating from FEZ outside of the territory of Moldova;
- A 25% exemption form the tax rate of 12% for income obtained from activities other than the export of goods and services;
- Total exemption from corporate income tax for a period of 3 years, as a result of an investment of at least USD 1 million;
- Total exemption from corporate income tax for a period of 5 years, as a result of an investment of at least USD 5 million;
- Exemption for the payment of excise duties for goods introduced on the territory of FEZ;
- VAT does not apply to goods and services delivered within the FEZ.
Tax facilities for IT Park companies
Moldova has introduced in its legislation a new concept – „IT Park”, which is a special platform that allows IT companies to benefit from a preferential tax regime, as well as various facilities on reporting procedures to the authorities, as well as a wide range of eligible activities that can be conducted.
IT Park member companies pay a single monthly tax of 7% on their sales revenue, but not less than 30% of the average monthly salary per economy, for each employee, as well as a membership fee, calculated and updated annually by the IT Park administration. Also, included in this single tax are all the salary taxes (income tax, social contributions and health insurance premiums), as well as corporate income tax, real estate tax, with the exception of VAT, withholding taxes, excise duties and other.
The IT Park concept does not bind employers nor employees to work in a pre-established physical space, and such have the opportunity to work anywhere in Moldova, therefore many investors have shown interest in this project. Moldova also introduced the „IT Visa” concepts, which represents a simplified process of attracting IT specialists and managers in Moldova, offering them a work permit here.
Relations between taxpayers and authorities
As a result of the numerous reforms in the fields of digitalization of tax services, all tax returns can be submitted electronically, as well as many services related to the authorities can be solved remotely, via the online services.
If the tax payers have any uncertainties or questions regarding the implementation of any tax – such can send letters requestions explanations and/or interpretations to the law, and an answer will usually be drafted within 30 days. Additionally, if taxpayers want, they can obtain a binding letter from the tax authorities, which can be requested for an amount of MDL 30,000 – MDL 60,000 (approx. EUR 1,400 – 2,800).
Please note that the late penalty fees are set in amount of 0.0355% per day, and the general statute of limitation for carrying out tax audits is of 4 years (with certain exceptions related to fraud).
Moldova has signed 50 international tax treaties on the avoidance of double taxation and prevention of tax evasion on income and capital taxes, thus eliminating or lowering the tax rate for certain types of income.
Moldova has also signed 19 bilateral agreement in the field of social security, offering the possibility to apply the legislation the field of social insurance for sickness, accidents and pension insurance between the signatory countries.
Another indicator of the fact that Moldova applied the best international practices and provisions is that the local tax legislation provides that, should the case be and international treaties be applied, their provisions will prevail on the local ones, and in case different quotas between their provisions be set – only the ones that are more favorable to the taxpayer would be applied.